Sweat Equity problem


2

I am soon to launch an interesting network. I have completed product development and currently testing the product. In the course of working on the project, I met an experienced man who loved the project and asked to work on it with me. For this, we agreed verbally and via email that he would have sweat equity of 5% plus another 5% if he invested 30,000 USD which he did. The problem though is that I didn't specify then of any vesting period even though I had it in mind - I was waiting for the contract to be prepared where these conditions would be specified.

Two weeks ago, he came in with some heart issues and wants an early exit. But he wants to keep his sweat equity. Of course, I totally disagree. He has worked for few months (part-time) and now wants to claim 5%. Now he is sending stories about facebook being sued at a later stage and telling me to settle this amicably.

What kind of protection do I have here? I honestly had in my to put the cliff and vesting into the contract but since we just agreed briefly via email for him to start work, the vesting was not discussed.

Please, let me know what cover I have here. I haven't signed anything. I am going to speak to a lawyer but want to crowdsource your opinions also.

Many thanks in advance

Equity

asked Jan 24 '12 at 19:13
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Marie
11 points

4 Answers


4

Lets see, he has already invested $30,000 which you agreed is worth 5%. The issue is with the other 5% for sweat equity. Presumably he has done some work, but not what you would consider the full 5% worth.

So it boils down to he wants 10% and you want him to have 5%. Sounds like you two should compromise somewhere in the middle.

Even if he ends up with 10%, you still have 90% and will be in control.

The important things to focus on are money and control, don't get hung-up on the equity or egos.

answered Jan 25 '12 at 02:59
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Jonny Boats
4,848 points

3

Unfortunately, what you "honestly had in mind (but did not document)" isn't going to count for anything.

Ultimately this will come down to your word against his, plus whatever documentation (emails, for example) exists, plus your local/national laws.

Seek legal help, and I suspect your lawyer might also suggest that you don't talk about this in a public forum on the internet.

answered Jan 24 '12 at 22:10
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Nick Stevens
4,436 points
  • Additiona.I If you "had in mind" that period but never mentioned it and the other party started work on that - an attempt to enforce that is fraud. If it is not in your correspondence, then - you both agreed on a contract without that thing you had in mind. – Net Tecture 8 years ago
  • Bit overly dramatic. You DO have verbal contracts as well in law so its not for naught, but of course it makes it all the more complex and uncertain. – Ryan 8 years ago
  • Ryan - what do you find overly dramatic? Yes, there are such things as verbal agreements, however, typically, they're difficult to arbitrate, unless there are multiple witnesses to the agreement (otherwise it's "he said, she said"). – Nick Stevens 8 years ago

1

Decide how much equity you want to give this guy and talk to a lawyer.

You've already made one uninformed decision without documenting it or clarifying it. Don't make another one.

answered Jan 25 '12 at 05:01
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Evan P.
181 points

0

Marie, not having a written contract works both ways. Dilution is your cover. You can give him the 5% and dilute his shares out of the water afterwards. Refer to Eduardo Saverin's situation for example: http://www.quora.com/What-clause-was-used-to-dilute-Eduardo-Saverins-stake-in-Facebook-Inc That is not to say he won't try to contest the dilution with litigation.

Still, you should also stick to your guns about vesting as your first line of defense.

answered May 19 '12 at 02:33
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Henry The Hengineer
4,316 points

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